The 4 Phases of Property Investing
The property investing journey is defined by four different phases. I came up with these to help people understand what they need to do and be looking for in each phase to help them achieve their goals.
Phase 1: Save
The first phase is to save, save, save. I’ve talked about this in other posts so I’ll just give you the short version. In this phase, you don’t have any property yet and are working hard to get into that first property. You learn everything you can about property and borrow from family if you can. And if you can’t, you live a spartan existence and save like crazy.
Phase 2: Accumulate
Once you have your first deposit saved, you can go into the accumulate phase. You buy where it’s booming and leverage from one property to the next. Buy as much property as you can without over-committing yourself. Always make sure you’re positive cashflow after tax. This is critical if you want to keep moving forward.
Phase 3: Consolidate
The accumulate phase has to end eventually, because if you want to retire, you need to allow your properties to sit and build up passive income from surplus rent. This is consolidation. You can’t do this in the accumulate phase, because any extra income, equity, and rent are going towards acquiring your next property.
When do you want to time this? Ideally, about 5 years before you want to retire. Stop buying and let things grow on their own. Your strategy at this point could also include restructuring any debt to eliminate personal debt, like any mortgage on your own home. This might involve increasing the mortgage on an investment property and pay out the mortgage on our own home.
Phase 4: Retirement
Finally, you reach the retirement phase, or financial freedom. In this phase, you can live off the surplus rents, have fun, do whatever you want, ring your friends on a Wednesday and ask them if they want to go jet skiing (even though you know they’re at work) just to give them a hard time, and tell them that they should have listened to you.
But the thing about retirement is, it’s a fluid state for a property investor. It gives you options. As your rents continue to rise, your passive income (and disposable income) will continue to grow, which means that the banks will lend you money again. I’ve seen many property investors reach the retirement phase only to decide they’d like to start accumulating again, and that’s perfectly fine too, and they can continue to live off the passive income while they do it.
Now that you know what phase you’re in now, and where you’re headed, think about the next action you need to take to stay on track and achieve your goals.
Daimien Patterson is the CEO of Integrity Investment Properties, a property investment company based in Australia. He regularly produces books, blogs, and videos on the topic of property investing. Head to [integrityinvestmentproperties.com.au] for your free copy of Daimien’s book, Safe as Houses.